The International Sugar Organization, in the first of two
major sugar reports on Tuesday, forecast extended weakness in prices of the sweetener
as it forecast a fifth successive world production surplus.

The ISO, in its first full estimates for 2014-15, starting
in October, ditched the idea it had pencilled in of "neatly balanced" world
output and demand, forecasting instead a production surplus of 1.31m tonnes.

This would represent the fifth successive season when
production has exceeded consumption, driving stocks up to 78.01m tonnes as of
the end of 2013-14, albeit a season for which the ISO trimmed its forecast for
the surplus by 436,000 tonnes to 3.99m tonnes.

And it bodes ill for relieving the "bearish pressure" which
has driven prices of raw sugar to seven-month lows, while seeing the premium of
white sugar to raws drop to a nine-year low of $55.48 a tonne last month.

"The ISO believes that, even with
the small forecast surplus, global fundamentals are unlikely to support a rise
in market values from current values," the organisation said.

"Crucially, any possible price
recovery brought by production shocks over the course of 2014-15 might be muted
by the huge stocks accumulated since the beginning of the surplus phase in
2010-11."

Brazil prospects

The organisation acknowledged the
worsened prospects for output in Brazil, the top producing country, where
early-year drought has sapped cane harvest potential.

ISO sugar forecasts, 2014-15 and (year on year change)

Production: 183.752m tonnes, +0.6%

Consumption: 182.446m tonnes, (+2.1%)

Surplus: 1.306m tonnes, (-33%)

Indeed, the data came minutes before Unica, the Brazilian industry
group, reduced to 546m tonnes, from 580m
tonnes, its forecast for the cane harvest in the key Centre South region for
2014-15, on an April-to-March basis.

The ISO, which had forecast that Brazil
was poised for a 1.2% reduction in sugar output in 2014-15, on an
October-to-September basis, estimated the country's output at 39.5m tonnes, a
drop of 1.7%.

A forecast for a drop of about
500,000 tonnes in Chinese output was increased to a forecast of a 1.35m-tonne
decline, to 13.25m tonnes.

'Prospects have improved'

Even so, the ISO flagged the
negative, in pricing terms, of the prospect of weaker purchases on foreign
markets by China, which has large domestic inventories.

"Domestic prices in China have
continued to fall, auguring for potentially lower imports over the next season."

Furthermore, the group ditched
ideas of a drop in Thai output next season, and forecast a 1.1m-tonne rise to
27.1m tonnes in production in India, where "prospects have improved on the back
of more plentiful rainfall" after a weak start to the monsoon.

The ISO also highlighted that "initial
beet tests in European producers have turned out to be better than expected,
bolstered by good weather during the growing season".

European Union output for 2014-15
was seen rising 875,000 tonnes to 17.8m tonnes.